Electric utilities press for action on railroad costs

Unable to get Congress to act, electric utilities are trying a new tactic in their feud with railroads over freight services in rural areas, urging a federal energy panel to intervene because delivery problems could threaten the reliability of the power grid.

Unable to get Congress to act, electric utilities are trying a new tactic in their feud with railroads over freight services in rural areas, urging a federal energy panel to intervene because delivery problems could threaten the reliability of the power grid.

The chief executives of the Edison Electric Institute, the American Public Power Association and the National Rural Electric Cooperative Association (NRECA) signed a May 1 letter to the Federal Energy Regulatory Commission (FERC) that called coal delivery problems “a serious challenge” to the ability of utilities to meet electricity demand.

“For some coal-fired generators, rail coal delivery has not been keeping pace with coal use. Some existing on-site coal stockpiles are seriously depleted,” the groups wrote. “Moreover, the problems have existed for a long time, with little, if any, improvement.”

The trade groups hope to capitalize on the new powers given to FERC by the 2005 energy act, said Patrick Lavigne, a spokesman for the NRECA. The act for the first time gave FERC the ability to set and enforce reliability standards. A group established by the utilities themselves had previously set those standards.

In their letter, the groups urged FERC to hold a public meeting on the topic of coal deliveries. Bryan Lee, a FERC spokesman, said the commission is reviewing the letter.

FERC’s ability to intervene, though, is still unclear, even with new powers granted it. One utility source said the utility groups hope FERC raises concerns over reliability, which would support the utilities’ stalled efforts on Capitol Hill.

Jurisdiction over the railroads is held by the Surface Transportation Board, which can regulate rail prices if one line is dominating the market. The board, the subject of widespread criticism from shippers who feel it sides too often with railroads, has scheduled a hearing for May 11 to address the issue — another indication that the dispute, on low boil for years, may be heating up.

The Association of American Railroads, a trade group often at odds with the utilities, said it welcomed a FERC public hearing, but called for a more open review of the “root cause of problems in the coal supply chain.”

The group said FERC should consider utility management of coal inventories, unloading capacity at power plants, and the lack of investment in transmission lines to move power over greater distances.

AAR said the industry expects to spend $8.3 billion on improving rail capacity this year, which would be a record amount.

If coal deliveries are short, utilities may have to fire up more expensive natural-gas generators or buy electricity on the open market, which is also often more expensive than running coal-fired, “baseload” generators owned by the utility.

Although a broad collection of trade groups whose members rely on rail freight service — referred to as shippers — are lined up against the railroads, the groups have not met much success in Congress. Two groups have been spawned by the coalitions: the Alliance for Rail Competition and the Consumers United for Rail Equity. The lobbying has led to the introduction of bills that have yet to receive floor votes.

The dispute has long centered on the relatively high prices railroads charge in rural areas, which are often served by just one line.

But Lavigne, of the NRECA, said the issue has taken on increased importance in the past year. Some rural utilities are down to a three-day coal supply, and 20 percent of orders for deliveries in the past year went unfulfilled.

Lavigne said the issue of rail service is among a five-point list of concerns member-company executives are taking with them to hundreds of Hill office visits this week in the association’s annual “fly-in” day.

“It is perhaps the one that is receiving the most interest,” Lavigne said.

Shippers support three bills, among them S. 919, introduced by Sens. Conrad Burns (R-Mont.), Byron Dorgan (D-N.D.) and David Vitter (R-La.), and its companion in the House, H.R. 2047. They are intended to make it easier for shippers to challenge the rates charged by railroads.

A bill introduced by Rep. Mark Green (R-Wis.) would remove anti-trust exemptions for the rail industry.

Railroads argue that the bills could reverse financial gains made since the Staggers Act deregulated much of the industry. Before Staggers, many railroads faced significant financial problems.

Financially healthy railroads, the Association of American Railroads have argued, are necessary to ensure that the proper level of investment in rail infrastructure is made to meet growing demand.